Luby’s Cafeteria Finds Upside in Down Economy

Luby’s Inc. restaurant is not immune to the failing economy. However, there is one bit of good news for the company–its culinary contract services doubled income in one year.

The Houston-based cafeteria chain was scarcely profitable in the fiscal second quarter, which ended Feb. 11. The company earned just $146,000 on revenues of $70.7 million in 2009, compared to the $286,000 it earned for the same quarter in 2008.

Revenues for the latest quarter fell 2.7 percent from a year ago. The company was able to reduce its operating expenses. Payroll and cost of food all decreased compared to this time last year.

The company suffered from an increase in opening costs. $340,000 was spent to open new prototype locations. Last year, the company spent only $22,000 on opening new locations. The company attributes the increase in cost to new prototype stores that are being built as the future in cafeteria experience.

The infancy of the new prototype stores means the company cannot accurately predict whether the change in store type will be successful.

On the investors conference call held on March 18, Christopher Pappas, president and chief executive officer, gave an update on various promotions the restaurant ran in order to increase traffic:

“Based on feedback from our customers and operators and general managers and in conjunction with our analysis of the results, we believe that continuing to provide product innovation and communicating value offerings to our customers will start to drive sales,” he said.

Sales at the 117 restaurants open a year or more fell 3.2 percent in the second quarter. The company has also recently fielded customer complaints about the cost of food at the restaurant. In response, Luby’s created special deals to entice customers back to the restaurant.

The company ran a half-price promotion on its signature dish, the LuAnn Platter, a smaller portion of an entrée and two side items. Also, a kids-eat-free program on select days of the week.

“With respect to sales, we expect same-store sales to continue the current negative trend for the remainder of fiscal 2009, and we anticipate that recent sales pressures in our small and midsize markets could negatively impact our sale further,” Scott Gray, CFO, said during the conference call.

The company attributes the growing culinary contract services to the sagging economy. It is becoming cheaper for hospitals and other companies to outsource their food needs, instead of paying all the cost of food and labor.

Despite the grim outlook, investors rallied behind the stock to pull it up $.58, ending the day at $4.62.